India’s Wholesale Price Index Rises 7.45% In October

An employee arranges Indian currency notes at a cash counter inside a bank in Agartala, capital of India's northeastern state of Tripura, June 3, 2010. Photo: Reuters

India’s wholesale price index rose at a slower rate in October than that in the previous month, showing signs of a gradual decline in price pressure to make room for monetary easing.

According to the data released Wednesday by the Ministry of Commerce and Industry, India’s WPI, which measures the change in the price of goods sold by wholesalers, rose 7.45 percent in October, down from 7.81 percent increase in September and below the analysts’ expectation of 7.96 percent. The decreasing headline inflation should be good news because it can help the government invigorate growth without much concern about the rising prices.

Meanwhile, the Reserve Bank of India (RBI) is expected to ease the rates at the forthcoming policy meeting in November amid the growing concerns about the deteriorating growth prospects of the country's economy. The RBI has already cut its growth forecast for this financial year (April-March) from 7.3 percent to 6.5 percent.

Investors worry that even this rate can turn out to be too optimistic with the global economic condition worsening, which will have a significant negative impact on the output, inflation and budget. Earlier this month, Finance Minister P Chidambaram said that this year’s growth in India would be only in the 5.5-6.0 percent range.

Last month, the Reserve Bank of India (RBI) kept its key policy rate unchanged in spite of the government pressure on it to cut. The RBI left its key repo rate unchanged at 8.0 percent but cut the cash reserve ratio from 4.5 percent to 4.25 percent.

Inflation may no longer be the main concern of policymakers and the government may have more space to loosen monetary policies and make supporting economic growth a priority. Instead of fighting inflation, the most urgent priority for India appears to be the pro-growth policy stance against the current uncertain global situation.

The report on WPI comes after it was reported earlier this week that India’s industrial output fell in September compared to that in the same month last year, indicating that the weak global demand is continuing to have its impact on the country’s economy.

According to the data released Monday by the Ministry of Statistics and Program Implementation, India’s industrial production, which measures the change in the total inflation-adjusted value of output produced by manufacturers, mines and utilities, declined 0.4 percent in September compared to that in the same month last year, down from a 2.3 percent rise in August and also below the analysts’ expectation of a 2.8 percent increase.